Tuesday 29 June 2021

Subsidy incidence: EV edition

It's pretty standard drill in intermediate micro to work through some tax incidence questions. 

The general point is to remind students that it doesn't matter whether the government says some tax has to be paid by the business or by the customer, or whether it has to be paid by the employer or the employee. The burden of the tax depends on relative elasticities of supply and demand; the statutory incidence really doesn't much matter in determining the economic incidence.

The extension to subsidies is obvious - the same drill applies. 

And I guess that supply of used electric vehicles in Japan is relatively inelastic. NZ's announced EV subsidy scheme, yet to come into effect, is bidding up prices there. 

Turners' subscription fleet was made possible with a grant from the Government's green transport fund. But used EVs were becoming more difficult to source from Japan, Hunter said. "In terms of pricing, the vehicles in Japan have all gone up for the amount of the subsidy – $3450."

Robert Young, director of New Zealand's biggest used car importer Nichibo Japan, agreed prices had gone up, though not by quite as much. He said the market had been "perverted" by the subsidy, and New Zealanders would see that as the new EV and hybrid stock was shipped over from the Japan used car auction houses.

He estimated about half the $3450 subsidy would end up off-shore, benefiting the auction vendors in Japan and the UK as well as new car manufacturers. More would go to GST – meaning Kiwi EV buyers would pocket only about one-third of the subsidy.

"This policy is more about political run-scoring than achieving its objective," Young said. "It will drive up new and used car prices for New Zealanders and increase the age of the national fleet which reduces road safety. 

The funniest part is Minister Wood thinking he can do much of anything about a bidding up of auction prices of used cars in Japan.

But Transport Minister Michael Wood said the Government was keeping a close eye out for any attempts to take advantage of the subsidy.

“The new and imported used vehicle market is very competitive and I’m sure anyone attempting to distort market pricing will be called out," he said.

"I have asked my officials to keep a close eye on the market as the Clean Car Discount gains momentum. Over the lifetime of the policy, it will help make cleaner cars more accessible to Kiwis.”

Suppose that you were the official tasked with 'doing something' about higher used car auction prices in Japan. Where would you even start?  

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